THE BOURBON INDUSTRY: KENTUCKY'S AMBER ROAD CLE Credit: 1.0 Friday, June 23, 2017 10:10 a.m. - 11:10 a.m. East Ballroom C-D Owensboro Convention Center Owensboro, Kentucky A NOTE CONCERNING THE PROGRAM MATERIALS The materials included in this Kentucky Bar Association Continuing Legal Education handbook are intended to provide current and accurate information about the subject matter covered. No representation or warranty is made concerning the application of the legal or other principles discussed by the instructors to any specific fact situation, nor is any prediction made concerning how any particular judge or jury will interpret or apply such principles. The proper interpretation or application of the principles discussed is a matter for the considered judgment of the individual legal practitioner. The faculty and staff of this Kentucky Bar Association CLE program disclaim liability therefore. Attorneys using these materials, or information otherwise conveyed during the program, in dealing with a specific legal matter have a duty to research original and current sources of authority. Printed by: Evolution Creative Solutions 7107 Shona Drive Cincinnati, Ohio 45237 Kentucky Bar Association TABLE OF CONTENTS The Presenter .................................................................................................................. i A Short Legislative History of Bourbon ............................................................................ 1 Bourbon and the Law: A Brief Overview ......................................................................... 3 Kentucky Legislature Considers Vintage Spirits Law ..................................................... 11 Bourbon Boom Sets Record .......................................................................................... 13 'Large Company' Ordered Craft Distiller to Change Name............................................. 15 Kentucky Bourbon War Looms over Technology ........................................................... 17 THE PRESENTER Fred Minnick 9221 Featherbell Boulevard Prospect, Kentucky 40059 [email protected] FRED MINNICK is the Wall Street Journal best-selling author of the award-winning Whiskey Women: The Untold Story of How Women Saved Bourbon, Scotch & Irish Whiskey and Bourbon Curious: A Simple Tasting Guide for the Savvy Drinker. He is the "Bourbon Authority" for the Kentucky Derby Museum and serves as a judge on the San Francisco World Spirits Competition and the World Whiskies Awards. He’s also judged multiple cocktail contests, including the national competitions for Old Forester, Four Roses and Citadelle Gin. Mr. Minnick is a graduate of Oklahoma State University where he received a B.S. in Agricultural Communications. He is a member of The Authors Guild, American Society of Journalists and Authors, United States Bartenders Guild and the Honorable Order of Kentucky Colonels. i ii A SHORT LEGISLATIVE HISTORY OF BOURBON Fred Minnick I. 1700s A. English encourage planting corn, but not distillation. B. Virginia passes laws giving residents land for planting corn. C. President George Washington implements a Whiskey Tax, leading to a distiller rebellion. II. 1800s A. President Thomas Jefferson repeals the whiskey tax. B. Louisiana Purchase opens up trade. C. Whiskey Tax returns to pay for War of 1812. Repealed again in 1817. D. Congress issues steep tariffs on rum, allowing for whiskey to steal market share. E. Civil War: North taxes whiskey, while South prohibits it. F. Distillers defraud government to pay for Republican campaigns, including President Grant’s reelection. G. Bottled-in-Bond Act of 1897 passes and becomes an important step toward consumer protection legislation. III. 1900s A. Pure Food & Drug Act curtails unsavory medicinal whiskey practices. B. President Taft defines whiskey. C. Prohibition halts whiskey production. D. Distillers battle Congress for medicinal whiskey. E. 21st Amendment gives states the right to legislate alcohol, repealing Prohibition. F. World War II: Government requires distillers to make industrial alcohol. G. Department of Justice investigates corrupt distilling industry for monopolistic practices. 1 H. Bourbon lobbies for it to become America’s Spirit. I. Distillers lobby and create new whiskey classification, Light Whiskey, to compete with vodka. J. President Reagan attempts to deregulate alcohol industry. IV. 2000s A. Craft distillers attempt new legislation to protect their styles. B. States peel away restrictive 1930s laws to attract distilling industries. C. Kentucky imposes steep taxes in 2009, forcing distillers to push back. D. Bourbon distillers fight for tax reform and tourism-friendly laws. V. FUTURE Distillers fight dry counties, three-tier system and unfriendly alcohol laws. 2 BOURBON AND THE LAW: A BRIEF OVERVIEW ∗ Mark W. Podvia Reprinted with permission from LH&RB Newsletter, Summer 2015, at 1, reprinted in 8 Unbound 5 (2015) Question: What type of whiskey has been defined by the United States government as "a distinctive product of the United States?" Answer: Bourbon!1 Question: What is the name of one of Kentucky's most celebrated counties? Answer: Bourbon!2 Question: What is the official beverage of the Commonwealth of Kentucky? Answer: Milk.3 Bourbon is a type of American whiskey4 made primarily from corn. All Bourbon is whiskey but not all whiskey is Bourbon. Pursuant to 27 CFR §5.22(b)(1)(i), Bourbon "is whisky produced at not exceeding 160° proof from a fermented mash of not less than 51 percent corn, rye, wheat, malted barley, or malted rye grain, respectively, and stored at not more than 125° proof in charred new oak containers; and also includes mixtures of such whiskies of the same type." There is no minimum aging requirement for Bourbon, however Bourbon aged less than four years must state the age on the bottle. In addition, 27 CFR §5.22(b)(1)(i) provides that "[w]hiskies…which have been stored in the type of oak containers prescribed, for a period of 2 years or more shall be further designated as "straight"; for example, "straight ∗ Mark Podvia is Head of Public Services and Instruction and Special Collections Librarian at the West Virginia University College of Law Library. This article had its origins in a program that the author presented at the 2015 SEAALL Annual Meeting. He would like to thank Kurt X. Metzmeier, Associate Director and Professor of Legal Bibliography at the University of Louisville Law Library, for his suggestions that added to the quality of this article. 1 S. Con. Res. 19, 88th Cong., 78 Stat. 1208 (1964). 2 Thirty-four present-day Kentucky counties were formed out of the original Bourbon County, usually referred to as "Old Bourbon County." Ironically no Bourbon is distilled in modern Bourbon County. 3 What was the Kentucky Legislature thinking? You folks in Kentucky need to work on this one! 4 Also spelled Whisky. 3 bourbon whisky." Federal regulations further provide that there can be no artificial coloring or flavoring in Bourbon whiskey. There is no legal requirement that Bourbon be produced in Kentucky. However, roughly 95 percent of all Bourbon is produced there. Really – who would want to drink Hawaiian Bourbon?5 The production of whiskey was among the first industries of the American colonies. Isolated farmers, particularly those on the frontier, found it far easier to convert their excess grain to whiskey for shipment to market by wagon or raft. Whiskey produced in western Pennsylvania was usually made from rye;6 that made in Commonwealth of Kentucky was more often made from corn.7 Thus it should come as no surprise that, following the American Revolution, whiskey was among the first domestic products to be taxed by the Federal government. The Excise Whiskey Tax Act – officially "An Act repealing, after the last day of June next, the duties heretofore laid upon Distilled Spirits imported from abroad, and laying others in their stead; and also upon Spirits distilled within the United States, and for appropriating the same" – was adopted by Congress on March 3, 17918 with the strong support of Secretary of the Treasury Alexander Hamilton. Designed to pay the Revolutionary war debts that the new Federal government had inherited from the states, the Act provided for the taxation of distilled spirits at a six- to 18- cent per gallon rate; smaller distillers often paid double what larger distillers paid, with payment being made in cash to a Federal revenue officer appointed for the distiller's county. Needless to say, the new tax was opposed by the farmers/distillers in western Pennsylvania, western Maryland and Kentucky. Resistance gradually turned from disobedience to violence; in July, 1794, shots were fired at a Federal tax collector.9 Faced with armed rebellion – the first test of the new Constitution – President Washington lead an army from Carlisle, Pennsylvania to Bedford, Pennsylvania and the insurrection was quelled.10 Although Washington's army never reached Kentucky, distillers there generally complied with the law following the collapse of resistance in 5 "Tennessee Whiskey" generally meets the requirements of Bourbon but – with the exception of Benjamin Prichard's Tennessee Whiskey – it is required under Tennessee law to be filtered through sugar-maple charcoal, a procedure known as the Lincoln County Process. 6 The author recently had his first experience with Rye whiskey – wow! A bottle of Town Branch Rye now resides in his liquor cabinet. 7 According to legend, it was the Rev. Elijah Craig who first made Kentucky whiskey